After an intense two weeks of central bank activity, it will be a relatively quieter week ahead of the Western Easter break. Along with Eurozone flash PMI, inflation data for the UK and Japan will be the main data to watch over the coming seven days.
Starting the week will be housing data for the United States. Existing home sales are due on Monday and are forecast to show a 2.9% decline over the month in February. New home sales numbers will follow on Wednesday but are expected to head in the opposite direction with a 2.9% month-on-month gain for February. On Thursday, the latest durable goods orders figures are out and following a strong jump in January, they’re expected to fall back by 2.7% m/m in February. There will be more on the state of US manufacturing from the latest Markit manufacturing PMI out on the same day. Manufacturing activity is forecast to improve in the flash March reading with the index rising to 51.6 from 51.3 previously. Rounding up the week for the US on Friday will be the third and final estimate of fourth quarter GDP growth. However, no surprises are expected out of the final figures which should show the US economy growing by an annualized rate of 1%, as in the second estimate.
In the Eurozone, survey data will dominate Tuesday, starting with the German Ifo business confidence gauge. The Ifo business climate index is expected to show a small increase to 106.0 in March. Another closely watched German business monitor, the ZEW Survey, is also forecast to show improving confidence. The ZEW economic sentiment index is expected to increase to 5.0 in March from 1.0 the prior month. Both surveys deteriorated last month, raising concerns that the euro area’s largest economy is not able to withstand the headwinds from its slowing export markets. Meanwhile, the latest Markit PMI readings are likely to confirm the view that the Eurozone economy has lost some momentum in the first three months of 2016, supporting the ECB’s recent actions that further stimulus is needed to revive the region’s economy. The flash composite PMI for the Eurozone for March is forecast to stay unchanged at 53.0, mainly as a result of services activity expanding at February levels. The manufacturing component is forecast to show a slight improvement though for the month.
The UK will see two major data releases next week consisting of CPI (Tuesday) and retail sales (Thursday). Annual CPI in March is forecast to edge up slightly to 0.4%, which would make it the highest 12-month change since December 2014. However, core inflation is expected to stay steady at 1.2%, underscoring the Bank of England’s view that underlying inflationary pressures in the UK economy remain muted. The latest retail sales figures might give some cause for concern though as they’re forecast to show a 0.5% month-on-month drop. This would give an annual rate of 3.8% in March, notably slower than the 5.2% rate seen in February. Strong consumer spending has been the main driver of UK growth, helping the economy outperform its European peers. The pound could therefore prove sensitive to an unexpectedly weak reading.
Finally, the latest inflation numbers out of Japan are likely to bring some relief to the Bank of Japan. Annual CPI is forecast to accelerate to 0.3% in February from 0.0% the prior month. Core CPI, which excludes fresh foods, is also expected to pick up, rising to 0.1%, while the BoJ’s own core rate, which also excludes energy, is forecast to come in at 0.8%. The Bank of Japan has been struggling to bring inflation up to its 2% target and debated at its January meeting whether it should increase the size of its asset purchase program. It instead chose to introduce negative interest rates, but the move failed to impress the markets and the yen has not depreciated from the effects of looser monetary policy. The Bank is likely to point to the improving core rate as evidence that its policies are working.
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